To ensure adequate monitoring of high-risk individuals, such as politically exposed persons (PEPs), financial institutions are obliged to show due diligence from customer acquisition through to in-life monitoring. This emphasises the importance of not only screening clients against watch-lists, but also examining the transactions of a client to detect suspicious behaviours. It is essential for banks to have sufficient anti-money laundering systems in place, particularly in the case of PEPs who are susceptible to being targeted for illegal payments.  What needs to be determined however is what exactly sufficient anti-money laundering protection is? 

ICD says MMFs currently invest in approximately 38% of total commercial paper assets. Assuming a 27% (66% x 41%) MMF reduction, their contribution to commercial paper financing would decrease by USD 110 billion, which  would challenge companies like General Electric, Johnson & Johnson, Harley-Davidson, Procter & Gamble and other enterprise companies who rely
on commercial paper as a means to finance accounts receivable, maintain inventories and meet short-term liabilities.

Institutional MMF investors surveyed by ICD were  reacting to plans by the SEC to place additional capital buffer requirements on MMFs,  principle redemption holdbacks, and conversion to a floating net asset value. Most MMFs provide stable net asset value, which is referred to as a "buck in, a buck out."

The ICD survey findings  are discussed in a new ICD Commentary: Costs and Consequences, which states that lowered credit supply for treasuries would increase U.S. borrowing costs.
MMFs contribute 37% of the investment funding for all U.S. government agency securities. Assuming a 27% reduction, ICD says MMF contributions to agency securities financing would decrease by $103 billion.

“The significant corrective reforms made to Rule 2a-7 by the SEC in 2010 are working, witnessed by MMF steadiness and control during the 2011 U.S. debt ceiling showdown, U.S. credit rating downgrade and the ongoing Eurozone debt crisis,” commented Tory Hazard, ICD’s COO/CFO. “To add further unnecessary regulation will negatively impact U.S. corporations, municipalities and the U.S. Treasury with more expensive financing at the worst possible time."

In the wake of the 2007-2008 financial crisis, ICD says that regulators are unnecessarily targeting money market funds, which it says were the last asset class to encounter any difficulties, and any losses incurred were minimal. It claims that MMFs rebound from the financial crisis and their 40-year history of "rock-solid" performance, proves their resiliency. Money market funds even survived the US debt downgrade and eurozone crisis.

During the 2007 to 2008 financial crisis, the Reserve Primary Fund, a USD 65 billion money market fund experienced a run on its fund after investors panicked about its exposure to Lehman Brothers. The number of redemptions that ensued saw US money market fund balances fall from USD 4 trillion pre-crisis to USD 2.7 trillion. However, market observers say balances in MMFs have crept back up again particularly in the current climate where leaving cash on deposit at your bank, which may have been downgraded, is less of an attractive option for some institutional investors.

 

“The Payments Council project will enable banks to move from informational to transactional mobile financial services. But as they begin to offer real-time mobile payments through our infrastructure, we are already supporting the industry in preparing for the next stage in mobile financial services.

 

“The future of mobile payments depends on looking beyond the boundaries of card-based networks. We are creating opportunities for banks to offer more than just P2P payments and facilitate all types of interbank payments via mobile.

Although the Swiss-based group generated a profit of CHF 216 million in fiscal 2011 thanks to special effects, the operating result declined, particularly since the fourth quarter of 2011, and the outlook for 2012 is cautious. The Board of Directors has therefore initiated measures to secure profitability. In this context, the cost basis is to be sustainably reduced by CHF 30 million or some 2.3%. In addition to reducing non-personnel costs,the company intends to cut some 150 of the 3,900 positions worldwide. The reductions essentially involve all areas of SIX Group in Switzerland and abroad, but will mainly focus on the Payment Services and Financial Information areas. It is likely that positions will have to be reduced. Concrete measures and a social
compensation plan will be developed in the coming weeks. 
 
SIX Group has a stable and secure infrastructure and as such makes an important contribution to the competitiveness of the Swiss financial sector. The company achieved a great deal in the past four years. It has launched innovative services and steadily expanded its international business. Despite very good performance in the securities business and volume growth in
the international business, the difficult economic environment and the strong franc have had a noticeable impact on the financial statements.

In the card business, aside from currency effects, negative factors include falling retail sales, a decline in foreign tourists, and lower margins. In the financial information business, exchange rates and intense cost pressure are reducing income in the financial sector. The markets are still dominated by uncertainty and customers are under tremendous savings pressure. All this is dampening sales expectations for 2012 for all business areas.

However, thanks to special effects, SIX Group still achieved good financial results in fiscal 2011. Profits rose by 27.3% to CHF 216 million. This rise is a result of the
release of provisions in connection with a change in pension fund regulations (IAS 19) and the elimination of the write-down on the assets of Eurex subsidiary ISE taken in the prior year. SIX Group will announce its financial results for 2011 at a press conference on March 27, 2012.

 

 

The live poll asked Canadian treasurers that were doing business in Europe, how confident they were that their bank was prepared for a euro exit, 61% were not very confident. When asked about plans for global growth, only 1% said Europe featured in their strategy. Indeed, of those thinking about exiting any region, 35% said that Europe was the most likely.

Other surveys show a rather cautious outlook by chief financial officers in Asia towards the West. In BofA Merrill's inaugural 2012 CFO Outlook Asia, CFOs in Asia, excluding those in Japan, were positive about their regional economy but cautious on the world economy. They ranked the current state of the Asia-Pacific region’s economy 6.4 out of 10 while their rating for the global economy was substantially lower at 4.7.

Misys, which provides a range of banking and risk management software, had earlier agreed to merge with core banking software provider, Temenos, however, according to the FT, Vista has made a GBP 1.2 billion offer for Misys. The FT reports that this is lower than the offer Fidelity National Information Services made last year for Misys.

Some of Misys' largest shareholders reportedly support the Temenos deal, however, according to newspaper reports, it could take longer to realise the benefits from a tie-up with Temenos,whereas most software companies that have been bought by private equity providers often experience the immediate benefit of a significant capital injection which can be used to acquire other smaller companies to complement their existing software or to invest in R&D.

Vista Equity Partners recently bought Thomson Reuters' trading and risk management business, Kondor, which according to the newspaper report,l could fit nicely with the solutions provided by Misys.

In the January 2012 edition of financial-i, Drew Hofler, senior manager, Financial Solutions, Ariba, maintains that corporates should seriously consider putting their excess cash to work by looking more closely at opportunities within their supply chain. "Cash that's hoarded in traditional, low-return liquidity vehicles is cash that's losing value and potentially creating risk," says Hofler.

Ariba maintains that buyers on its network captured discounts of more than USD 4.5 million in 2011 and that buyers receiving these discounts saw average annual returns of between 10% and 30%, far greater than the returns delivered through traditional investments.

For Drew's full article click here.

John maintains that the results of regional adoption of the tax (in other words if France or Germany or the eurozone just implemented it) would be "catastrophic" for governments, corporate issuers, investors and employment.

To read the full article click here.

At last year's Sibos conference in Toronto last October, Kah Chye Tan of Barclays Corporate resisted the temptation to jump on the Basel-bashing bandwagon. He said that the banks had had 20 years to get their act together when it came to Basel and being able to compile data to demonstrate to the regulators that trade finance was low risk. "We had to wait for a major sub-prime crisis to get our act together on data," he stated. "We can't keep putting the blame on Basel."

Having evaluated the impact of Basel II and Basel III in low-income countries, the Basel Committee on Banking Supervision last October decided to "waive the one-year maturity floor for certain trade finance instruments under the advanced internal ratings-based approach (AIRB) for credit risk." It also agreed to waive the "sovereign floor" for certain trade-finance related claims on banks using the standardised approach for credit risk. However, the100% credit conversion factor (CCF) in calculating the leverage ratio for contingent trade-finance exposures remained in place.

As the regulatory constraints on banks' capital continue to pile up their fear mongering appears to have spread to the corporate community. According to a recent survey of corporate treasury professionals conducted by EuroFinance, 57% of Western European corporates expect the implementation of Basel III will negatively impact their company performance. Yet, 40% of corporates, including Western European companies, indicated that Basel would have no impact. Another 61% of European corporate treasurers believe banking regulators do not understand the impact of regulation on corporates and trade finance. Even more banks (67%) indicated regulators did not understand the consequences of their actions. Western European corporates were split between those (42%) that predicted flat revenue or profit, and those (42%) that predict increased revenues and/or profit for the coming year.

"Substantial projects with reasonable to good prospects will not materialise due to banks' Tier 1 capital constraints," remarked one European corporate treasurer EuroFinance surveyed. Another commented that Basel III "will increase the cost of funds for mid and small caps, increase inflation, and destroy value in Europe."

The question remains will companies and the banking community in general have to pay the price for having "safer" banks under the Basel III capital regime. Will forcing banks to hold more capital on their balance sheets deliver the levels of "safety" regulators and politicians are looking for? Is there some other way that banks could meet the Basel III requirements without passing on the costs to their end customers?

One thing is for certain, corporates will have to reassess their traditional funding models.

Standard Chartered's inaugural corporate sentiment survey conducted by the bank’s equity research team focuses on optimism amongst corporates in Indonesia and in the energy sector; as well as a better inflation outlook in 2012 for most Asian economies. This the first in a quarterly series of  surveys, was based on the views of 529 C-Suite executives from seven Asian economies and 12 industry groups, 99% of whom are clients of Standard Chartered and business contacts of the equity research team. The survey differentiates itself by structuring questions that draw out important links between economic variables such as corporate order books, costs and margins, as opposed to focusing on single-issue variables. The responses thus help build a complete picture of the outlook for industry sectors and economies.

• Buoyant new orders are centered on economies that are more domestically oriented, including Indonesia, India and Thailand.
• Capex and hiring plans are also biased towards these economies, whereas cyclical economies (with the exception of Korea) and sectors are less positive.
• The RMB is gaining traction as a settlement currency, with 37% of the respondents using or intending to use it.
• The biggest challenges faced by corporates are: the demand outlook (selected by 28% of respondents), cost pressures (25%) and regulation (19%).

TARGET2-Securities is one of the initiatives for the creation of the single European market, which follows the introduction of the euro, TARGET2, SEPA (Single Euro Payments
Area) and the PSD (Payment Services Directive).

The delivery of the new T2S platform is planned for mid-2015. According to European Central Bank figures, TARGET2-Securities will process a daily average of more than 1 million securities transactions with positive effects on the costs of cross-border settlements, where it is forecast there will be a significant reduction.
 
The successful partnership between SIA and Colt, created for this project, reflects on the experience of both companies in providing highly secure, networked solutions to the financial services sector across the European markets.  
 
SIA is one of the leading service providers in Europe in the banking and financial sectors and processes a daily average of more than 3 million transactions through a proprietary network infrastructure (SIAnet) with two operational hubs, one in Milan and one in London.  
 
Colt, Europe’s leading information delivery platform, is an established provider of managed services to the financial sector. It provides connectivity to a number of stock exchanges across Europe and some of the fastest connections between key trading capitals such as London and Frankfurt.
 

Plans announced in September by UK Chancellor George Osborne to develop London into an offshore trading centre for China’s renminbi (RMB) currency focused attention once again on the growing attractiveness of settling trades in RMB for European businesses. The move followed a meeting with Chinese vice-president Wang Qishan and gave official Treasury support for the City’s push to trade the RMB, a market expected to grow rapidly for trade, foreign exchange and bond issuance.

The new service gives triparty cash collateral takers the option to re-invest cash into an array of money market funds seamlessly through FundSettle. FundSettle is Euroclear Bank’s dedicated platform for fund transaction processing. BlackRock is one of the first providers of money market funds for this purpose. The cash re-investment service is available in euros, British pounds and US dollars.

Jo Van de Velde, managing director and head of product management at Euroclear, said: “Our close co-operation with BlackRock, as one of the early
adopters to make their money market funds available, will meet the increasing demand from our clients to avoid re-deposit risks. Having multiple options
to re-invest cash collateral is a key requirement from market participants in the secured markets. By offering a seamless cash re-investment service in
money market funds to our clients, without any complexity, we add another dimension to delivering our post-trade made easy mission.”

Mark Stockley, managing director and head of international cash sales at BlackRock, said: “As an expert in liquidity management, BlackRock’s Cash Management Group is supportive of industry initiatives which provide solutions to our clients’ cash management needs.

 

The EBA's latest figures published on the 8 December, show that German bank Commerzbank has a capital shortfall of EUR 5.3 billion when it comes to meeting requirements for a 9% core capital ratio by the summer of 2012. That fuelled media speculation that  the bank may be "nationalised". According to the EBA's stats, Deutsche Bank has a capital shortfall of EUR 3.2 billion. German banks' total capital shortfall is now in the region of EUR 13 billion.

Other banks with high capital shortfalls in terms of meeting the EBA's 9% core capital target included Spain's Banco Santander, which is estimated to have a shortfall of EUR 15 billion. Belgium's Dexia Bank, which has already been nationalised, has a capital deficit of EUR6.3 billion, the EBA estimates, and Italy's UniCredit, a deficit of EUR 7.9 billion.

Capital shortfalls were based on September 2011 figures. The EBA said the capital buffers are designed to cover losses in sovereigns but to provide a reassurance to markets about the banks’ ability to withstand a range of shocks and still maintain adequate capital. "National supervisory authorities may, following consultation with the EBA, agree to the partial achievement of the target by the sales of selected assets that do not lead to a reduced flow of lending to the EU’s real economy but simply to a transfer of contracts or business units to a third party," the EBA stated.

Banks with capital deficits will have to submit plans detailing the actions they intend to take to reach the set targets by 20th January. These plans will have to be agreed with national authorities and reviewed, shared and consulted on with the EBA and with other relevant competent authorities.